Russia’s invasion of Ukraine has caused inflation to become stubbornly entrenched in countries around the globe.
Prices rose last year on the back of supply chain clogs, shutdowns related to Covid-19 and rising energy costs — problems that were expected to fade in 2022.
Six months ago, the Organization for Economic Cooperation and Development estimated that hardly any of its 38 members would see inflation rates rise above 6 percent. The main exceptions were Turkey and Argentina, which were already contending with runaway inflation mostly unrelated to the pandemic.
Since then, sanctions against Russia, one of the world’s top energy and grain producers, have supercharged food, fuel and fertilizer prices. Russian bombing, blockades and seizures have cut off the flow of grain from Ukraine, another top producer, raising the specter of famine in the poorest food-importing nations.
At the same time, China’s policy of locking down areas where there are Covid-19 outbreaks has exacerbated the problem.
This week, the OECD announced sobering updates. In seven eastern European nations, the inflation rate is now expected to surge past double digits. The estimated rate for the Netherlands this year nearly tripled to 9.2 percent; Australia’s doubled to 5.3 percent. And like the United States, Britain and Germany have seen inflation rates hit four-decade highs, well above previous forecasts.
This is likely to eat away at households’ incomes and savings while stunting efforts by companies to invest and create jobs.
Central banks in the United States, Britain, Australia and India have all recently moved aggressively to contain rapidly rising prices by raising interest rates. Even the European Central Bank, which had been reluctant to raise rates for fear of triggering a recession, said Thursday that it would end asset purchases and raise its key interest rate by a quarter-point at its meeting next month, and possibly by even more in September.
But there is a limit to what political and financial leaders can do about rising inflation — especially given the varying causes. In many regions, like Europe, inflation is driven by significant spikes in food and energy prices. Raising rates won’t solve the underlying supply problems, the OECD warned.
By contrast, the organization partly blamed inflation in the United States on “over-buoyant demand,” which is more responsive to tighter monetary policy. Compared with Europe, the US labor market is tighter and nominal wage growth is higher.
Though inflation is causing intense pain in some spots, the longer-term forecast is more positive. The World Bank expects the rate of global consumer price inflation to drop below 3 percent next year.